Proceedings of the Special Senate Committee on the
Anti-terrorism Act

Issue 8 - Evidence - Morning meeting

OTTAWA, Monday, April 18, 2005

The Special Senate Committee on the Anti-terrorism Act met this day at 10:30 a.m. to undertake a comprehensive review of the provisions and operations of the Anti-terrorism Act, (S.C.2001, c.41).

Senator Joyce Fairbairn (Chairman) in the chair.


The Chairman: This is the sixteenth meeting with witnesses of the Special Senate Committee on the Anti-terrorism Act. For our viewers, I will explain the purpose of this committee.

In October 2001, as a direct response to the terrorist act in New York City, in Washington D.C. and in Pennsylvania, and at the request of the United Nations, the Canadian government introduced Bill C-36, the Anti- terrorism Act. Given the urgency of the situation then, Parliament was asked to expedite our study of the legislation. We agreed and the deadline for the passage of that first bill was mid-December 2001. However, concerns were expressed that it was difficult to assess thoroughly the potential impact of this legislation in such a short period of time. For that reason, it was agreed that three years later Parliament would be asked to examine the provisions of the act and its impact on Canadians with the benefit of hindsight and a less emotionally charged public.

The work of this committee represents the Senate's efforts to fulfill this obligation. When we have completed this study, we will make a report to the Senate that will outline any issue that we believe must be addressed, and allow the results of our work to be available to the government and to the Canadian public. I should say that the House of Commons is undergoing a similar process.

So far, the committee has met with government ministers and officials, international domestic experts on the threat environment and legal experts, as well as those involved in enforcement and intelligence gathering.

This morning, we turn our attention to the issue of terrorist financing and money laundering. We have with us today, representatives of the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC. Specifically, we are joined by the centre's director, Horst Intscher. He is accompanied by Sandra Wing, Deputy Director for External Relationships, and Josée Desjardins, Senior Counsel.

As always, colleagues, we have a full morning. I would ask Senators to be as concise as possible with your questions, and also panel, without short-changing us, as concise in your answers as possible, and therefore we will get as much dialogue in as we can. Mr. Inschter, the floor is yours.

Mr. Horst Intscher, Director, Financial Transactions and Reports Analysis Centre of Canada: I am pleased to have this opportunity to appear before this committee to speak about FINTRAC and how we operationalize the terrorist financing provisions of the Anti-terrorism Act. I propose to make a brief presentation about FINTRAC, its mandate, and how it does its works.

I would like to speak first about FINTRAC's mandate and the evolution as Canada's financial intelligence unit, emphasizing the role that the Anti-terrorism Act played in shaping that evolution. I will then touch upon the operations of FINTRAC with respect to detecting and deterring money laundering and terrorist financing, and some of the results we are seeing. I will sum up by reviewing briefly some of the challenges and opportunities that face FINTRAC in the future.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act was passed in June 2000. Parliament's main aim with that act was, first, to strengthen the detection and deterrence of money laundering in Canada and around the world by requiring financial intermediaries to report suspicious and other prescribed transactions, and to keep records pertaining to customer identification; second, by requiring persons or entities transporting large amounts of currency or monetary instruments across the border to report such movements to customs officials; and third, by establishing FINTRAC.

We were created under the act to receive information on certain prescribed transactions, analyze them and as appropriate, make disclosures to law enforcement and other investigative agencies, and to foreign financial intelligence units. The term, financial intelligence unit, is internationally recognized as describing a central or national unit that gathers, analyzes, and disseminates financial transaction information related to suspected money laundering, and more recently, suspected terrorist financing activity.

FINTRAC is Canada's financial intelligence unit, FIU. We are an independent agency, reporting to the Minister of Finance, who is accountable to Parliament for the activities of the centre. FINTRAC is also required to operate at arm's length from the investigative bodies to which it is authorized to make disclosures of financial intelligence. This independence was designed specifically to balance the need to safeguard the privacy of personal financial information with the investigative needs of law enforcement.

In the aftermath of September 11, 2001, governments attached a much higher priority to combating terrorism. This included targeting those activities that financed terrorist groups and their operations. In October of that year, the Financial Action Task Force issued new international standards, calling upon member countries to focus their monitoring of financial services and transactions on terrorist financing, in addition to money laundering. Two months later, Parliament, through the Anti-terrorism Act, expanded Canada's anti-money-laundering regime to guard against the use of the financial system by terrorist groups. The ATA's amendments to FINTRAC's enabling legislation changed the name of our act to the Proceeds of Crime, Money Laundering and Terrorist Financing Act, and expanded the reporting to FINTRAC in three key ways.

First, suspicious transaction reporting would also include suspicions of terrorist financing, in addition to money laundering. Second, a new requirement was put in place for FINTRAC to receive reports on known terrorist property and any transactions related to such property. Third, FINTRAC was authorized to receive voluntary information related to suspected terrorist financing, not just money laundering.

Amendments also required that where FINTRAC had reasonable grounds to suspect that financial intelligence would be relevant to the investigation or prosecution of terrorist financing activity, such intelligence would be provided to the police. A similar authority was also created in relation to disclosures to the Canadian Security Intelligence Service, CSIS, of information related to suspected threats to the security of Canada, which include suspected terrorist- activity financing.

The ATA amendments built upon our anti-money laundering mandate and capabilities, and enabled us to play a unique and important role in a government-wide effort to combat terrorist-activity financing.

I would like now to describe briefly what we do. Our legislation requires financial institutions and other businesses involved in financial and related services to keep certain records on their clients and transactions, and to report certain prescribed transactions to FINTRAC. The financial transaction we receive includes: first, transactions of any type and any amount that are suspected of being related to money laundering or a terrorist activity financing offence; second, cash transactions of $10,000 or more — this does not include cash withdrawals; third, wire transfers into or out of Canada for $10,000 or more; and fourth, terrorist property holdings.

This reported information is provided to FINTRAC by a wide range of financial intermediaries that we call reporting entities that include deposit-taking institutions such as banks and credit unions, money services businesses, foreign exchange dealers, security dealers, accountants, life insurance companies, real estate brokers and agents, and casinos. In addition, anyone crossing the border must report to the Canada Border Services Agency, movements of cash or monetary instruments of $10,000 or more into or out of Canada. All such reports are sent to FINTRAC by the Canada Border Services Agency. The CBSA also has the authority to seize currency that is unreported, or is suspected to be the proceeds of crime. FINTRAC also receives reports of these seizures.

In addition to our authority to receive voluntary information related to suspected money laundering and terrorist- activity financing, FINTRAC can also make use of publicly available information, and can access commercial databases and federal or provincial law enforcement or national security databases. With that background on the information we receive, I will now go into more debail on the nuts and bolts of what we do in our day-to-day operations.

We are a relatively small agency with a staff of around 180 and an annual budget of $30 million. We have two main operational functions that are tied to our detection and deterrence mandate: analysis and compliance. First, I will speak to our analytical function.

FINTRAC's requirement to detect and deter money laundering and terrorist financing is supported by our analysis of the financial information we receive. This analysis is done with a view to disclosing quality intelligence that can be of use to agencies that are responsible for investigating terrorist financing or money laundering. Our information technology capacity is a critical part of this process. The different kinds of transaction reports that I mentioned earlier are received electronically into FINTRAC's database, and they become immediately available for analysis.

FINTRAC's case analysis can have a variety of starting points. For example, it might be triggered by a report or a series of reports from a reporting entity, by voluntary information received from law enforcement or CSIS about cases they are working on, or by information provided by a foreign financial intelligence unit. Whatever the starting point, analysts search through the centre's database using specially designed technological tools to uncover patterns of transactions suggesting a suspicion of money laundering or terrorist-activity financing. When, as a result of our analysis, FINTRAC has reasonable grounds to suspect that its information would be relevant to the investigation or prosecution of a money-laundering or terrorist-activity-financing offence, we must make a disclosure to the police. In cases where there are reasonable grounds to suspect that the information would be relevant to threats to the security of Canada, including terrorist-activity financing, FINTRAC must disclose to CSIS.

In some cases, we must also disclose to the Canada Revenue Agency, to the Canada Border Services Agency or to Citizenship and Immigration Canada until the Canada Border Services Agency Act is brought into force. In these latter instances, we must meet a dual test. First, we must suspect money laundering or terrorist financing, and then we must find the information to be relevant to an offence under the mandate of those departments or agencies. As well, we may disclose to foreign financial intelligence units with which we have an information-sharing agreement. These bilateral agreements must be approved by the Minister of Finance, and we have about 20 of them in place at this time.

The information that FINTRAC can disclose is explicitly set out in our legislation. This ``designated information'' includes information about the transactions, where they took place, the individuals conducting them and any accounts, businesses or other entities involved. A FINTRAC case disclosure containing this information provides valuable intelligence to law enforcement because it provides them with leads that they can investigate. A typical case disclosure would likely identify six or seven individuals, five businesses and would involve a considerable number of transactions of various kinds, often reported by two or more reporting entities.

However, this designated information does not tell law enforcement the whole story and our legislation provides a mechanism for the police or CSIS to obtain additional information from FINTRAC in the context of an investigation. With a court-issued production order, an investigator may obtain FINTRAC's full case analysis relative to that disclosure. Our legislation prohibits any unauthorized disclosure or use of information received by FINTRAC from reporting entities, as well as information prepared by FINTRAC based on those reports. Penalties for unauthorized use of information could be a fine as high as $500,000 and imprisonment for a period of up to five years.

I have spoken to how our analysis contributes to our detection function. Now I would like to say a few words about how our compliance efforts aid in the deterrence of money laundering and terrorist financing. Compliance augments the levels and quality of reporting for analytical purposes but it also helps to ensure that Canada's financial services sector maintains standards designed to protect it against becoming a conduit for illicit funds. FINTRAC is mandated to ensure that reporting entities comply with the act and the regulations. We have established a modern and comprehensive risk-based compliance program. The quality of FINTRAC's analysis hinges directly on the quality of the financial information that we receive. To that end, we attach importance to developing and maintaining sound and cooperative working relationships with all our reporting entities as part of our risk-based approach to ensuring compliance and maximizing the quality and quantity of the reporting.

To date, we have conducted over 200 on-site compliance examinations in every reporting entity sector. Recognizing the challenges posed by the unregulated sectors, these examinations are focussed primarily on money-services businesses and foreign-exchange dealers. Each compliance examination results in the identification of deficiencies within the reporting entities program. The vast majority of these entities wish to comply, have cooperated and have taken action when deficiencies were brought to their attention. However, a small number have been, or will be, referred to law enforcement for investigation and possible prosecution, as provided for in the legislation.

I would like to share with you some of the results that we have seen in our terrorist-activity-financing disclosures. During the 2003-04 fiscal year, FINTRAC made 197 case disclosures of financial intelligence on suspected money laundering and terrorist-activity financing involving transactions valued at approximately $700~million. Of the 197 disclosures, 48 involved approximately $70~million in transactions related to suspected terrorist-activity financing or other threats to the security of Canada.

Our more recent results between April 1 and December 31, 2004, saw FINTRAC make a total of 99 case disclosures involving more than $1.2~billion in transactions. Of those, 25 were cases of suspected terrorist-activity financing or other threats to the security of Canada. As I mentioned, for the fiscal year 2003-04, the dollar value of disclosed transactions in relation to threats to the security of Canada and terrorist-activity financing was roughly $70~million. Based on what we have seen in the first three-quarters of the fiscal year 2004-05, I expect that number could double for the year. The marked increase in the value of financial transactions disclosed indicates that our growing experience and the growing volume of transactions in our database are allowing us to disclose larger and often more complex cases. However, these increases in what we see and disclose are not necessarily indicative of an increase in terrorist financing activity.

Based on a review of our terrorist financing cases for the 2003-04 fiscal year, we have seen that a large portion, some 80 per cent, involve international electronic funds transfers, most of which are wired out of the country and often sent to locations of specific concern. As well, we have seen that in one-third of the suspected terrorist-activity financing cases, the financial transactions include both large cash deposits and electronic funds transfers.

FINTRAC is very proud of what it has been able to accomplish. We have been in existence for less than five years, and fully operational for over three years. We began in July 2000 with no employees, no offices, no infrastructure and no operating systems, and we rapidly became a fully functioning agency that delivers solid financial intelligence. We built IT systems capable of receiving large volumes of reports each year. We were the first FIU in the world to achieve full, electronic reporting at start-up. We have also trained our analysts and equipped them with the tools to use this data to develop their cases.

Most importantly, the feedback we have received from law enforcement and CSIS indicates that the intelligence we provide is assisting ongoing investigations and providing new investigative leads.

Before closing, I would like to mention briefly some of the challenges ahead. Although we are relatively young, FINTRAC has already been quite successful. We will continue to enhance our capacity to provide law enforcement and intelligence agencies with timely, high-quality financial intelligence. We will continue to foster a cooperative approach to ensuring compliance, and conduct examinations on those reporting entities at risk for non-compliance. We will continue to share our experience and work with our partners to build an environment that is hostile to money laundering and terrorist-activity financing in Canada and globally.

We are also implementing the recommendations of the recent Auditor General's report. For example, we are working with the Department of Finance on a consultation paper they are preparing in advance of the July 2005 parliamentary review of our enabling legislation. That paper will propose a number of enhancements, including the expansion of the scope of information that can be provided in our disclosures.

Once again, I thank you for inviting us to appear before you today and I would be happy to answer questions.

The Chairman: Thank you, Mr. Intscher. Colleagues, we will get right at it. Again, I would ask you to be sharp and concise in your questions. I am sure that our panel will come back with the same kind of answers.

Senator Lynch-Staunton: Welcome, Mr. Intscher. I want to get to one topic in particular. Before that, I want to be clear in my mind exactly, do you wait for information to come to you or do you seek out information? Your written brief states, ``It receives suspicious transaction reports.'' Do you wait to get information, or do you also seek out information?

Mr. Intscher: We are not an investigative body. We are an analytic intelligence body. The transaction information that we are able to look at is provided to us pursuant to mandatory reporting requirements in our act. We do not have the authority to go out and seek transaction information from financial institutions or intermediaries.

That being said, we do not wait for something to jump up in front of us. We get quite a lot of reporting. We sift through that looking for patterns of transactions or anomalies in transactions that might be of interest to us. We can also access other databases in our analysis. We are also mindful of press reporting of some events so that we are able to initiate intelligence analysis on the basis of a variety of sources of information. Some of it is reported to us by mandatory requirement of the act, and some of it is available to us through databases and information sources that we generally have access to.

Senator Lynch-Staunton: Can a suspicious transaction report be for an amount much less than $10,000?

Mr. Intscher: That is correct.

Senator Lynch-Staunton: What are the criteria leading to a suspicious transaction? Do you establish them or do you just rely on the good faith of the reporting institution or individual?

Mr. Intscher: The determination as to whether or not it is suspicious and should be reported to us is made by the reporting entity in question. FINTRAC provides very detailed guidelines as to what those institutions should take into account when they are considering whether or not a transaction is suspicious. Those are published on our website. We provide them to reporting entities if there appears to be a doubt as to their understanding of it.

However, in the context of the business that they conduct, they are best equipped to judge whether a transaction is or is not suspicious. We provide a lot of guidance and tips as to things they should consider that might relate to money laundering or terrorist financing; but in the context of their business, they can usually see whether a transaction makes business sense or whether it is in keeping or out of keeping with the client who is conducting the transaction, and so on. There is an extensive list of factors that they can consult in our guidelines.

Senator Lynch-Staunton: The last question on clarification is this. Are the transactions that are reported to you only to Canada and out of Canada, or are they transactions done within Canada also?

Mr. Intscher: The suspicious transactions and the large cash transactions are transactions that are conducted within Canada. In addition to that, we also get reports of international wire transfers; in other words, transfers of money out of Canada or into Canada.

Senator Lynch-Staunton: Is every transaction over $10,000 reported to you? Hopefully, there are exemptions to that; otherwise, you would be flooded.

Mr. Intscher: Every cash transaction over $10,000.

Senator Lynch-Staunton: Cheque transactions or money order transactions are not reported?

Mr. Intscher: Occasionally, a cheque or money order transaction might be reported to us as a suspicious transaction. The routine reporting involves only cash transactions and really only deposits or purchases. It does not relate to withdrawals from accounts.

Senator Lynch-Staunton: The note I have here says large transactions. It should say, large cash transactions.

There is a lot of reliance on the reporting institution to make sure that the report is done in good faith, and that the suspicion is well based. That is quite a responsibility that we have asked not all overly qualified individuals to be involved in. I hope that is not causing problems, either by neglect or by excessive enthusiasm.

Mr. Intscher: It does not seem to be causing problems. The financial institutions have undertaken, as they are required by regulation, to implement a compliance program within their institution, which includes developing policies and guidelines for their own staff, providing training for their staff and so on, and they have done that. We, of course, conduct compliance reviews and compliance examinations in the highest risk areas to ensure that they are actually doing that. By and large, they are.

In some instances, we have discovered there are some shortcomings, which we have drawn to their attention and they have corrected with alacrity. There are a very small number of instances where the corrective action has not occurred, and the enterprise seems to be resistant to our suggestion that they make these corrections. In those instances, we have in some cases referred them, and in others we will refer them, for criminal investigation and prosecution for non-compliance. That is very much the exception.

Senator Lynch-Staunton: My main topic, and this comes from reports from the United States, and I assume from here too, the main concern over a potential source of money laundering are hawalas, which came to prominence not long after 9/11 here in Ottawa. The reason I bring it up is the fellow sentenced just the other day in the United States to 43 months for money laundering through hawalas claimed that he was part of a criminal organization that was sending up to $100 million to Pakistan. There is another man who has been arrested because he was not licensed. My question is: Do we have hawalas in Canada and if so, must they be licensed? Do they come under the foreign exchange dealers' rubric here?

Mr. Intscher: They would fall under the money services business.

Senator Lynch-Staunton: Do we have them?

Mr. Intscher: It will probably surprise you to learn that money services businesses and foreign exchange dealers are not licensed in Canada.

Senator Lynch-Staunton: Not at all?

Mr. Intscher: They are not licensed.

Senator Lynch-Staunton: Either provincially or federally?

Mr. Intscher: No; they presumably require a local business licence to establish a premise, but they are not regulated in any way. Money services businesses generally include the category of hawalas. Hawalas is a very loose definition, and in some ways an unnecessarily mystifying term.

It is really a term for an alternative remittance business, but even many of them resort to the use of conventional financial systems and procedures for the transfer of money, although they may make the transfer more informally.

They are subject to the reporting and record-keeping requirements of our act. That being said, great numbers have not rushed to make themselves known to us, but we have, nonetheless, identified quite a number of them, either through monitoring advertisements in community newspapers, or by reporting from other financial institutions about their transfer activity and so on. When we identify them, we call upon them and we draw to their attention the record keeping requirements and try to bring them into the orbit.

The latest round of revisions in the Financial Action Task Force recommendations calls upon member countries of the Financial Action Task Force to undertake some form of registration or licensing for money services businesses, and Canada is currently examining the best way to proceed with the implementation of that recommendation. It will likely result in some form of registration for these businesses, and specific penalties for failure to register.

Senator Lynch-Staunton: Is there currently no obligation to report?

Mr. Intscher: They are subject to the reporting and record-keeping requirements of the act.

Senator Lynch-Staunton: Are there any that have registered and do report? Most of them function as mom-and-pop businesses, do not they? They have agents on the other side who they contact by telephone and say, ``Do the transaction. We will settle it at the end of the month,'' so there is never actually anything going over the wire that you can trace.

Mr. Intscher: There is usually something going over the wire, though not necessarily in a straight line. When it involves small sums of money, the reconciliation can take place at lengthy intervals. If it involves larger sums of money, the reconciliation likely takes place more regularly. When the money is transferred to a third country, the reporting comes to us because that transfer takes place through a wire transfer or a bulk shipment that has to be declared at the border.

It is possible that there are hawalas or alternate remitters that have not made themselves known to us. I suspect that it will still be possible for them to exist even after there is a registration scheme, because those who engage in these transfers for a particular unlawful purpose will probably be as reluctant to register as they are now to make themselves known to us. We do have a number of mechanisms at our disposal to identify them, and eventually they will either be brought into compliance or they will stop operating.

Senator Lynch-Staunton: Does a major gap exist there of which the government should be aware, and should act a little more strongly to try to close?

Mr. Intscher: Although it is a gap, I would not characterize it as a major gap.

Senator Lynch-Staunton: It is potentially a major gap. I will stop there.

Mr. Intscher: It is backstopped by so many other reporting and record-keeping requirements in the financial system that, although it is possible to bypass those completely, I have not seen indications that they are being bypassed in a major way.

Senator Jaffer: I have some questions on hawalas as well. As you know, individual money services often play a very important role in remittances. For example, in a country like Somalia, where there is not a bank system, they play a legitimate role.

I understood that you were looking for a formal way to help them register. Are you still looking at that?

Mr. Intscher: The lead for implementation of the recommendation to register them falls to the Department of Finance, but we are working closely with the department to develop a proposal for the registration of such businesses.

Senator Jaffer: You mentioned the Financial Action Task Force. That task force says that hawalas remain a significant method for individuals and large numbers of businesses of all sizes to repatriate funds and purchase gold. It is favoured because it usually costs less than moving funds through the banking system. It operates 24 hours per day every day of the year. It is virtually completely reliable, and there is minimal paperwork required.

I recently saw a news release saying that Canada and Jamaica are encouraging low-cost remittance services. The two countries are entering into a partnership to identify financial institutions in both countries to reduce costs of transferring money, to improve the quality and statistics measuring remittance flows between Canada and Jamaica, and to establish appropriate legislative frameworks.

I will provide this news release to you. I am wondering whether this is a way to help people working in the hawala system.

Mr. Intscher: I would be interested to see that.

Senator Jaffer: Once you have had time to study this, I would be interested to hear from you, through our chair, as to whether this is a route that financial institutions will take to help people where there are not sophisticated banking systems.

Mr. Intscher: I would be happy to do that. I will take that report with me for discussion with colleagues at the Department of Finance in the context of any registration scheme as well.

Senator Jaffer: There are genuine hawala businesses. Many countries in this world do not have sophisticated banking systems and people use hawalas to remit funds to their families in these countries. Are you doing any outreach work to educate communities that have to use this method?

Mr. Intscher: We are doing a lot of outreach to entities that are engaged in that kind of activity. You are right to point out that many of these alternate remittance enterprises perform a valuable function in that they allow individuals in Canada to transfer funds to relatives and friends in another country where a formal banking system might not exist or the banking system might not be able to reach as far into those communities as are the hawalas. Many of them also use commercial transfer systems to effect these transactions. Many businesses that might loosely be called hawalas actually effect the transfers as agents of a worldwide commercial transfer mechanism, and in some instances it may be done completely unofficially.

As we become aware of the existence of such businesses, we reach out to them through our compliance program to introduce ourselves, to introduce them to their reporting and record keeping obligations and to follow up with them. In some instances, they actually become a reporting entity or an entity that is subject to our compliance program. In some cases, once we have called upon them they have ceased doing that kind of business.

We have not specifically reached out to the communities that use those facilities, but I think our presence is well known among the businesses that engage in those activities.

They are usually an adjunct to some other business that is used either to conduct financial transactions of various kinds, or to make travel arrangements. Sometimes, it is an adjunct to a completely unrelated business, such as a community grocery store or neighbourhood grocery store.

Senator Jaffer: I will certainly give you this news release. I was very encouraged to see this, because, as you agreed, there are people who can only genuinely transfer money this way. I know that in the U.S., hawala is illegal. When I am in the U.S. and look at ethnic peoples, I see that it is openly advertised. They do not say ``hawalas;'' they say ``sweet money deals.'' It is known that they are hawalas.

It is better to have something like this. I am looking forward to hearing from you to see if this is the way we can work.

Senator Andreychuk: I want a little information about casinos. They are one of the reporting entities. Do you get regular reports from casinos?

Mr. Intscher: Yes, we do. They are required to report the purchase of chips in large quantities. We get very regular and swift reporting from them.

Senator Andreychuk: Are you aware of any cases or irregularities coming out of casinos?

Mr. Intscher: Do you mean in relation to reporting or in relation to the nature of what is reported?

Senator Andreychuk: I mean in relation to the nature of what is reported.

Mr. Intscher: There have been a number of cases where there have been unusual transactions that have emerged from that sector, but I would add that there have been a number of unusual transactions reported from every financial- services sector in this country.

I could not say that casinos stand out more than other businesses. Their reporting is quite regular, and is quite valuable to us.

Senator Andreychuk: A number of the casinos in my area are operated by Aboriginal communities. Are they included in this act? Were there negotiations with the on-reserve casinos?

Mr. Intscher: I just want to double-check the answer before I provide it.

Yes, they are covered by us.

Senator Andreychuk: With the transactions that you are involved with from casinos, banks, et cetera, is your emphasis now more on terrorism than on organized crime, or do you see that the two are interrelated? How do you approach this area? What is your philosophy on this?

Mr. Intscher: We have two strands to our mandate: money laundering and terrorist financing. We give emphasis to both. Because of the way in which we look at terrorist financing, we do give it priority because, ultimately, the objective of our work is to generate information that will help prevent a crime from being committed; in other words, to help prevent a terrorist act from being committed.

With respect to money laundering, the crime — the fraud or the sale of drugs — has already been committed. Although it is important for us to generate intelligence to deter those activities and to aid law enforcement agencies in investigating and prosecuting them, in terms of the risk to public safety, terrorism probably poses a higher level of threat. For that reason, we do give quite a bit of attention to it.

I might add that it has been a surprise to me that suspected terrorism financing forms as large a part of our caseload as it does. When we originally received the mandate, my personal estimate was that it would probably amount to 5 per cent, or, at best, 10 per cent of our caseload. To my considerable surprise, it consistently now amounts to about 25 per cent of our caseload.

Senator Andreychuk: There seems to be much literature indicating that there is now a coming together of international illegal activity with terrorist activity, and that where previously the illegal organizations were in it purely for money, as they still appear to still be, they are now working hand-in-hand with terrorist organizations. How do you differentiate terrorist activity from money laundering in your statistics when in fact they may be helping each other, they may be working in concert, or the money laundering may be the precursor to some other activity that involves finances but is still part of a terrorist network?

Mr. Intscher: There are certainly reports of the cooperation between some terrorist groups and some organized crime groups. The extent to which that is actually occurring is open to much question and interpretation. There is no question that some of it is happening and, in fact, we have seen some instances where we had difficulty differentiating whether the activity was related to drug trafficking or credit-card fraud, or whether it was related to terrorism financing. In some instances, we made disclosures under both strands of our mandate.

More generally, though, it is possible for us to see fairly early on in which direction it is moving. Much terrorist financing involves money that starts out being clean that is ultimately destined for some criminal purpose, so the source of the money is not usually disguised. With money laundering, they are essentially starting with money that is already tainted. Those people often go to considerable lengths to disguise the source of the money at any point at which reporting might occur.

That is one of the ways in which we can see a difference. However, on occasion, the two come together. Sometimes, it is a little difficult to decide which way to move, and in some instances we have concluded that there were both. Whether the money laundering was ultimately intended to facilitate terrorist activity, it was still money laundering; it was still the laundering of proceeds of crime and, therefore, disclosable to police organizations in that respect. However, since we also suspected that it was destined to support terrorism, we also made a disclosure in relation to terrorist financing.

Senator Andreychuk: You receive information from those who are obliged to disclose it to you, and you indicated, from some other sources. You are also obliged to pass this information on, whether it is terrorist activity or illegal criminal activity. Do you have any limitations on those you disclose information to on how they can use it, or do you rely on their protocols and practices? In other words, once it leaves your hands, do you have any control over what happens to that information and who uses it? If it is misused, do you play any part in it or are you aware of it?

Mr. Intscher: When we make a disclosure to the police or to CSIS, it is for the purposes of investigating. We make the disclosure because we believe that the information will be relevant to the investigation or prosecution of a money- laundering offence or a terrorist-financing offence.

When CSIS receives that information, that is the basis on which they have received it, but if, in the course of their investigation, they see that this information also helps them investigate a fraud or people-smuggling, they are able to use that information provided that it is for a purpose that is within their mandate.

Once we pass it to them, we no longer control that information.

When we make a disclosure to a foreign financial intelligence unit, we impose some constraints on that. First of all, we would disclose it specifically for intelligence purposes related to investigating money laundering or terrorist financing. It is for the use of our counterpart agency. If they wish to make an onward disclosure to another body within their country, they first have to obtain our concurrence to do that. In other words, they cannot onward disclose without our agreement, and that is usually the reciprocal arrangement. We would apply the same to their information if they have provided information to us. Before we could pass it on to the police, we would have to seek their concurrence.

Senator Andreychuk: If you give this information to the international authority and they want to pass it on for further information, what kinds of scenarios would you allow to have this information passed further? Have you had any cases of that? Have you used that?

Mr. Intscher: The assessment that we would make, if we disclosed to the foreign financial intelligence unit and they came back and sought authority for further disclosure, we would want to have information as to the nature of the investigation to which this was going to be supplied. If it is consistent with the purpose for which we have collected the information, in other words, it is a money-laundering investigation or a terrorist-financing investigation, we would concur. If it is for a completely unrelated purpose, or if it is information that we ourselves obtained in confidence from another source, we might say, ``No, we are sorry. That information is for your use for intelligence purposes, but we cannot agree to the onward disclosure.''

Senator Andreychuk: Is there a country that you would not disclose with, or are you working with all countries, theoretically?

Mr. Intscher: We are able to exchange information with countries with which we have concluded a memorandum of understanding on the exchange of information and the use of that information. We have about 20 of those memoranda in place now, and we are working on another 18 or 20. We would consider a number of factors in deciding whether to have an agreement with a country. One factor that we consider quite carefully is the country's willingness and ability to protect the information that we provide to them, and to honour the restrictions that we place on the information.

Are there countries with which we would not exchange information? If they do not meet a number of the criteria that we have selected for identifying potential information exchange partners, we would either defer an agreement or defer indefinitely an agreement.

Senator Andreychuk: As I understand it, lawyers are exempt from disclosure at the moment. However, there is a concern by law societies, and a pending case on solicitor-client privilege. As I understand it, this does not protect lawyers if they are within the ambit of criminal activity. Recently, there has been a case of a convicted lawyer for money laundering.

Have you had discussions with law societies? What is the concern if, in fact, the actions of a lawyer within solicitor- client privilege are confidential? How do you make that distinction about when a lawyer is acting beyond that privilege and is in concert with either a terrorist or criminal organization? How do you draw the line between the two?

Mr. Intscher: As you probably know, lawyers were originally covered by the provisions of the act, and quite a lot of trouble had been taken in drafting those provisions to provide protection for information that was covered by solicitor- client privilege.

In fact, explicitly, solicitor-client information was excluded from the reporting. It is a complex issue, and the law societies did not agree with the government's interpretation of how that should be applied. They sought and obtained injunctions, so the Attorney General of Canada suspended the application of that part of the law to them.

Since then, there have been ongoing discussions between the Department of Finance and the various law societies to try to develop a means by which the legal profession can be brought under coverage of the legislation. I gather that those discussions are well advanced now, and we are hopeful that they will be brought under coverage again in the reasonably near future.

Senator Cools: Point of order, Madam Chairman: This subject matter is extremely important. Could you ask the witness to put the sections of the act that he is referring to on the record so that all of us could follow with a bit more clarity? This is very important.

The Chairman: Thank you, Senator Cools.

Senator Cools: The Attorney General suspended sections from applications, so can you tell us the sections of the act that you are referring to?

Mr. Intscher: Section 11 of the act explicitly excludes solicitor-client privilege from the reporting requirement.

Although the legal profession is not required now to report suspicious and other transactions, that does not mean they are not subject to reporting by other institutions. If, for example, a member of the legal profession makes a large cash deposit to his trust account, the financial institution which holds that account would be required to report to us the fact of that large cash transaction.

Similarly, if he or she conducts a transaction that the financial institution finds to be suspicious, it would report to us. Lawyers themselves are not required to report those transactions now, either about their own transactions or those of their clients.

Senator Andreychuk: I do not think it is the intention of the law societies or anyone else that lawyers be exempt from accountability for their criminal behaviour, such as the recent case, but rather, it is about solicitor-client privilege. That has not precluded you from getting and using information that may have been passed elsewhere about a particular transaction without violating solicitor-client privilege.

Mr. Intscher: That is correct.

Senator Andreychuk: Would you be satisfied with keeping the status quo as the injunction has provided?

Mr. Intscher: I would be happier if there were some reporting requirement for lawyers because, at present, the reporting we get is not by them but about them by other financial institutions.

If someone makes a $500,000 cash deposit to trust accounts, we will receive a report from the bank that the transaction has occurred, but we will have no information about the beneficial ownership of that money. In other words, we have no information about the identity of the client on whose behalf that transaction was made.

Senator Andreychuk: You have had some opportunity to work in this field. Do you believe that there is a need to cover those transactions from a practical point of view, or are you looking at it more from a generic whole, as one area that you would want scanned also?

Do you have any reason to believe that there are serious and large transactions of a terrorist or criminal nature being conducted through law offices? I think it is the exceptional nefarious person wearing whatever label rather than a profession that should be subject.

Mr. Intscher: That is true, but it is also true for banks and all professions.

Senator Andreychuk: I do not see banks in the same category as lawyers.

Senator Cools: Chartered accountants.

Senator Andreychuk: I am asking the witness, please.

Mr. Intscher: It is also true for accountants, insurance brokers or real estate agents. We have seen concrete examples where some members of the legal profession were engaging in transactions that should have been reportable. We would like to have seen them reportable because they gave rise to some suspicion as to the origin and purpose of the funds.

More generally, by not having them report, we are, in essence, making it possible for them to be sought out by, or targeted by, unsavoury elements for the purpose of conducting transactions that would otherwise be reportable in other institutions. From a FINTRAC perspective, that is undesirable. In the same way that we are on the lookout for other types of businesses or other types of transactions that might lend themselves to exploitation for laundering or terrorist-financing purposes, we also would like to close gaps in existing businesses and existing transaction types.

Senator Andreychuk: Will we have the law societies here who have made the case as to why solicitor-client privilege is different for lawyers as opposed to other professionals? It would be interesting to hear their side and view of it, since obviously there has not been a meeting of the minds to this point between the law societies and the Government of Canada.

The Chairman: Thank you, Senator Andreychuk. We will get into that area in May.

Senator Cools: Could we also perhaps hear a witness on the issue of solicitor-client privilege? It is supposed to be an extremely narrow privilege, but it has been growing like Topsy all over the place. This is not the first bill. Quite often now, in bill after bill, we are seeing this exemption for lawyers, which means that we are creating a new group of aristocrats or a new group of immunized individuals. I cannot think of some of the witnesses now, but there are many who are studying the continuing empowerment of lawyers in society. Perhaps we could hear some witnesses, because I hold to the position that lawyers should not have been exempted in the legislation at all. What we have created here is a group of interested persons. I think it is about time that we heard some testimony on this important point.

As Enron has shown us all, we are now in an era where professionals are no longer exempt from suspicion. This particular piece of legislation singles out lawyers for preferred treatment, but we could also look at bank managers, financial advisers and doctors. There could be a host of other professionals.

It would be interesting if we could begin to look at the whole phenomenon as I have described it. A whole area of academia has grown up around the study of lawyers, and it is called the sociology of law. We should hear testimony that is more objective and not as interested as the testimony of the law society, which I view as a very interested group. Their position is not objective.

The Chairman: Senator Cools, we will certainly look into that issue. As a committee with the mandate that we have, we cannot do a whole study on that but as we proceed with our inquiry, we will certainly look into that.

Senator Cools: It is happening more and more. It is putting lawyers actually beyond the law. It is called governance beyond the law.

The Chairman: We have less than an hour left with our witnesses, honourable senators, so we will go into a second round.

Senator Joyal: Thank you, Madam chairman.


Senator Joyal: Ms. Desjardins, I would like to come back, on page 17 of your presentation, to the number of cases disclosed — 197 in 2003. Mr. Intscher mentioned it would probably be twice as much in 2004-2005, and I am also wondering about the 48 cases of terrorist activity financing. More precisely, should we understand that 48 of those 197 cases — 25 per cent — were related to terrorist activities? Does it mean that three quarters of the cases were linked to organized crime?


Mr. Intscher: Yes, that is correct. The remaining cases were cases of suspected money laundering, which, in most instances, would involve activity by groups that would be characterized as being organized crime.

Senator Joyal: When there is such a case that you report, how many of those cases on a yearly basis would be the object of a litigation; in other words, where the person whose money has been seized would go to court to try to recover the money? What is the percentage of cases whereby people fight to get their money back?

Mr. Intscher: It is premature for us to answer that. First, we have been grappling with the question of how best to obtain feedback from the investigative agencies as to the use that is made of the intelligence and what role it played in investigations. Investigations of this kind tend to be very complex and time consuming, and it is not uncommon for two or three years to elapse from the time an investigation is initiated to the time that charges would be laid. Only at the time that charges were laid would prosecutors seek to freeze any funds, if they were planning to do that.

That is something we are likely to see more of a year or two down the road. Many of the cases we have disclosed so far to law enforcement agencies are in the early stages of investigation, or waiting in a queue to be investigated, because they may have been fully engaged already in completing investigations that have been launched some time previously.

The issue of freezing and forfeiting assets is still some way down the road. At this point, I do not think we have any information that we could usefully provide on that type of litigation.

Senator Joyal: After three years of the legislation, of the approximately 200 cases that you have communicated, in how many of those cases where the person is the object of the denunciation would the person have had their rights reinstated or their money returned?

Mr. Intscher: Thus far, their money has not been attached in any way. It is only at the stage that the investigation is concluded by police that they could begin proceedings to freeze assets, pending the outcome of the prosecution.

Senator Joyal: In other words, your activities do not deal with one of Canada's customs agencies; is that correct?

Mr. Intscher: That is correct.

Senator Joyal: If Canadian customs agents seize money at the border or at the boarding of an airplane, they would have a different operation than yours; is that correct?

Mr. Intscher: That is correct.

Senator Joyal: Would they transfer information to you, or would they send it directly to the police forces?

Mr. Intscher: When Canadian customs officers seize money at the border, we get a copy of the report of that seizure. We also routinely get copies of the declarations that are filed by travellers proceeding in and out of the country.

Part 2 of the act, which is now administered by the Canada Border Services Agency, has a well laid out process and timelines within which individuals whose funds have been seized can seek to have them returned.

We obtain general reports on the proportion of funds that are forfeited and the proportion that are returned to the owner, but we are not involved in that process. We are recipients of that kind of information.

Senator Joyal: Are you required to pass on that information to one of the 20 countries with which you have a memorandum of agreement?

Mr. Intscher: If we receive a query or disclosure from a foreign agency like ours and we are to respond, we would only be able to disclose to them the same kind of information that we are able to communicate in our disclosures to law enforcement. If we identify information about transactions or people and institutions who are involved in the transactions, then we can disclose. That would include, for example, if an individual had declared carrying $60,000 across the border and we had a report on that; that is information we could disclose. Any other information related to proceedings within Canada, police suspicions and so on, even if we had that information, which we often do not, we would not be able to disclose it.

Senator Joyal: If I understand the nuance in your answer, if the money is seized at the airport, it is a Canadian territory that would remain within Canada's knowledge. If the money is seized from a person crossing the border by the customs agents at the border, will that remain totally within Canada's knowledge, or could that be transferred to the country where the border was to be crossed, in this case the United States?

Mr. Intscher: If the money is seized on our side of the border, it would remain in Canada and we would be notified of the seizure.

Ms. Josée Desjardins, Senior Counsel, Financial Transactions and Reports Analysis Centre of Canada: Honourable senators, the Canada Revenue Agency, CRA, is responsible for administering part 2 of the act. From a FINTRAC perspective, they would be informed of the seizure, get the information about the seizure and would have cross-border currency reports about the money coming into and leaving Canada. FINTRAC would use that to perform its mandate.

The Canada Revenue Agency may have the ability to share that information with other customs agencies and it might be better if you ask the Canada Revenue Agency or the Canada Border Services Agency, CBSA. I still think of the border as falling within the realm of Revenue Canada. I am sorry, I should be saying CBSA. They may have other authority under their own legislation to share that information, but are not responsible for executing that part of it. That is a CBSA mandate. FINTRAC will receive information and can disclose to foreign intelligence units as well under the scheme that was explained.

Mr. Intscher: It is my understanding that there is not an existing authority to allow for the exchange of seizure information, but that both CBSA and the Department of Finance are trying to find a remedy to make it possible to exchange that kind of information with their U.S. counterparts.

Senator Joyal: That was my understanding of the situation, but I wanted to put it very clearly on the record. At this point, if somebody in Canada, a Canadian citizen or a foreigner, is the object of a seizure of cash over $10,000, then that seizure remains in Canada as long as the legal proceedings are not completed. If the proceedings are completed and the person is found in possession of money that is the proceeds of crime or has been used in a terrorist link, then that disclosure can be shared with, in this case, the United States if it was at that border or with the 19 other countries with which we have signed an agreement. That is the present situation. It might change if there are changes in the regulations of the finance and revenue departments. Am I right in my description?

Mr. Intscher: Yes, you are right. I should clarify, too, that FINTRAC, in exchanging information internationally, can only exchange with its counterpart organizations. In the case of the United States, we could only exchange information with an entity called the Financial Crimes Enforcement Network, FinCEN, which is an agency of the U.S. treasury department. We cannot disclose to other authorities, customs or law enforcement authorities in the United States.

Senator Joyal: Once you have transferred information to your counterpart in the American treasury, that counterpart is free to answer any request from any American agency, be it the FBI or whatever else is looking into these activities; is that correct?

Mr. Intscher: The understanding that is reflected in our memorandum of understanding, and it is also reflected in the principles governing an international body of organizations like ours, is that the exchange of information takes place between financial intelligence units for intelligence purposes and that onward transmission to an investigative body would require the concurrence of the original provider of the information. We can disclose to FinCEN for intelligence purposes, but if they wish to pass that information to the FBI, the Secret Service or whomever, they need to ask for our concurrence. They have done so in several cases.

Senator Joyal: Is that the case even after the adoption of the Patriot Act?

Mr. Intscher: Yes.

Senator Joyal: That is an interesting point. There have been many questions about the privileged access to information of a confidential nature provided to international agencies having to be disclosed on the basis that it could be linked to terrorist activities. As such, those agreements do not stand the paramount objective of maintaining security in the United States.

Mr. Intscher: If we disclose to them transaction information relevant to a suspicion of terrorist activity or terrorist financing, they would come back to us to seek our concurrence to supply that information to the FBI or whomever. Assuming that it was for the purposes of investigation of terrorism or terrorist activity, we would concur with that onward movement of the information provided that we were not constrained ourselves in doing so by the original providers of the information to us. In other words, if the information that we disclosed included information that we received from the RCMP, CSIS or an entity in a third country, we would not be able to concur in the onward transmission of our information without first consulting the parties that had supplied the information to us.

Senator Joyal: To remain with the legal aspect of this, are you aware that there are cases in the Canadian Federal Court presently that contest the constitutionality of the legal need to disclose the possession of cash over $10,000?

Ms. Desjardins: Yes, but it is a CBSA file.

Senator Joyal: Are you part of that file? Have you provided arguments on the basis of the presentation that is being made in the Federal Court?

Ms. Desjardins: The litigation is being led by the Department of Justice, with the concurrence of the Canada Border Services Agency. We are aware of the file but, as I indicated, part 2 of the legislation is not the responsibility of FINTRAC. FINTRAC is not intimately involved in that litigation.

Senator Joyal: However, the result of that case could affect you directly.

Ms. Desjardins: We are interested in the outcome, obviously, yes.

Senator Joyal: The argument put forward by the parties, as much as I have been able to read the substance of the procedure, is to the effect that the mere fact that you are in possession of cash money over $10,000 compels you to explain the origin of that money. In other words, it changes the onus of proof. You are presumed to possess something that needs to be justified, which is against the presumption normally in the Charter of Rights and Freedoms. If that argument is received by the court, and that section of the custom agencies and anti-terrorism legislation is found to be unconstitutional, pending some criteria or other aspects that the Court might want to frame, that could have a major impact on your activities, the way I see it. Are you aware if there are other cases, or is there only one case in the Canadian court that deals with this issue?

Ms. Desjardins: At this time, I would not know how many cases. I would have to speak with my colleagues at the Department of Justice who are handling this litigation. I am not aware of the details of the cases. Our colleagues consult us when they need assistance to build a case, so we are aware of it, but I do not know the details. We would have to deal with the Department of Justice litigation section.

Senator Joyal: Have you been involved in the preparation of the answer of the Government of Canada in relation to the petition that has been launched in the Federal Court?

Ms. Desjardins: Intimately, no.

Senator Joyal: I am not looking for intimately; I am looking for legally. Have you been part of the drafting of the government's response to the petition that has been tabled with the Federal Court on the basis of the constitutionality of those sections of the Customs Act and the Anti-terrorism Act on the possession of cash money?

Ms. Desjardins: No.

Senator Joyal: You have not been involved. On the overall agreement that you have with the 20 countries, would it be possible to get a copy of the substance of the agreement that you have entered into with the various countries, with the list of the countries?

Mr. Intscher: We would be happy to provide you with the template that we have developed for such agreements with all countries and which we use as the basis for concluding those agreements. There are minor variations in the wording of those agreements from one country to another, but they are not substantive in their character. We would be happy to send a copy of that.

I can also identify the countries with which we now have such agreements: United States, the United Kingdom, Belgium, Australia, Mexico, Italy, Barbados, Netherlands, Portugal, Republic of Korea, El Salvador, Panama, France, Finland, Bulgaria, Denmark, Monaco, Latvia, Cyprus and Guernsey.

Senator Joyal: I would like to come back to two other issues, perhaps on a second round. They pertain to the two criteria you mentioned that you apply to the transfer of information. You mentioned it must be relevant to the mandate of the agency. I would like you to explain the first one, because I was making notes and I am not sure I got all the information I wanted on those two criteria.

The Chairman: Thank you, Senator Joyal. Do you wish to have that answer now, or could we let Senator Stratton have his question and get on to the second round?

Mr. Intscher: I am trying to remember whether I was speaking in relation to transfers of information to foreign entities.

Senator Joyal: No, it was in reference to the various agencies to whom you disclose your information — CSIS, Canada Revenue Agency and Citizenship and Immigration Canada. You say there is a double test. You have two criteria that you follow, if I can remind you of your answer.

Mr. Intscher: FINTRAC was created for the purpose of detecting suspicions of money laundering, and subsequently that was amended to allow us to detect suspicions of terrorist-financing activity. The predicate offences for money laundering are all indictable offences except for a certain list of offences, or categories of offences, that are excluded. One of the excluded offences is tax evasion.

If we do an analysis and we come to the conclusion that, in this particular case, these six people who have laundered $2 million are also engaged in tax evasion, then we can make a disclosure to CRA, but we first have to meet the test for money laundering. Then we have to meet a separate test, reasonable grounds to suspect that it would be relevant to an investigation of tax evasion. In part because of the requirement of the second test, and in part because our experience and the experience of other organizations like ours shows that it is not a safe assumption that any money laundering also involves tax evasion, we need to meet that separate test before we can disclose to CRA.

Similarly, for the purpose of disclosing to Citizenship and Immigration Canada, we would first have to meet the test of money laundering or terrorist financing, and then a separate test of reasonable grounds, to suspect that the information we have would be relevant to an offence under the Immigration and Refugee Protection Act. For police and security agencies, we have only the single test of money laundering or terrorist financing, but for any other recipients, and the potential recipients are identified as CRA and Citizenship and Immigration Canada, we must meet the two tests. We are not able to disclose to any other agencies.

Senator Joyal: My colleague, Senator Andreychuk asked you a question about an appeal, if I followed your question, Senator Andreychuk. You said, if I again remember well on the notes I have taken, that there is no appeal of that decision that you take to transfer the information to CRA, the immigration department or to any other agencies.

Mr. Intscher: I am not sure I understand the question, Senator Joyal.

Senator Joyal: In other words, you apply a double test. Once you have looked into a file and you come to the conclusion that there is sufficient information or elements to conclude that this is a money-laundering operation that might be linked to terrorism or organized crime, then you can go a step further and conclude that it might be too a tax evasion case. In the context of the conclusion you have drawn, there is no appeal. Is there nothing in the law that provides the person, bodies or corporation that is involved with any recourse in front of the court, at the moment that the person will be charged?

Mr. Intscher: Our information will not lead directly to a charge. What we are disclosing is intelligence about activities or transactions that are suspected of being related to terrorist financing or money laundering. The disclosure is made to an investigative body for the purpose of conducting the investigation and determining whether there is, in fact, such activity going on, and whether it will lead to charges and prosecutions.

There is no direct appeal to our disclosure to them but in the course of the prosecution, we could be called upon to testify, to demonstrate the reasonableness of our original conclusion that this met the threshold of suspicion.

Senator Joyal: Are your conclusions shared with the Department of Justice or any other department before you transfer them?

Mr. Intscher: No. They go only to the investigative bodies as intelligence. That is the RCMP, the Sûreté du Québec, the Montreal police, or the Toronto police — whatever law enforcement body — or to CSIS, to whom we have made the disclosure.

Senator Andreychuk: Senator Joyal, my point was, when that information goes, they have no further authority to track what was done with it or to hold the other agency accountable, as I understand it. I think you are now leading to the natural point of what happens should that information be used in ways that may be harmful to somebody. Is there recourse? I do not think I went that far.

I left it since they cannot do anything. It goes into that area.

Senator Joyal: I know I am over my time.

The Chairman: We will have a second round, Senator Joyal. I am anxious that Senator Stratton has his opportunity to ask his question. Then we will go into the second round.

Senator Stratton: I would like to go into that area, because it was my original question. We have dealt extensively this morning with how a charge is laid or how an investigation is carried out and what happens thereafter. Here we have a situation where someone is charged. Does that individual, company or corporation who has suffered the charge and been found innocent have any recourse to you at all, other than through the courts? How do you protect that company or individual that turns out to be innocent from a charge?

I know you try to be as careful as you possibly can but, nevertheless, things are going to happen. Once having suffered the damage, the reputation of the individual or company is destroyed. The individual's financial status is very severely hurt or destroyed. What recourse does the individual or the company have to you — through the courts in a normal fashion, or is there something in legislation that says if we fail to carry out our job, you can...?

Mr. Intscher: The information we disclose to investigative bodies is really in the form of leads or intelligence about suspected activity. It is then the work of the investigative bodies to conduct that investigation to establish that there are reasonable grounds to believe that such offences have occurred, and to seek the charges and prosecution. It is inconceivable to me that a prosecution would ensue directly from our information, because it is based only on suspicion. It is only incomplete information. It is one of the sources of leads, one of the sources of intelligence, that are available to law enforcement agencies that would be charged with the responsibility of conducting the investigation and bringing the case forward for prosecution.

Senator Stratton: If that is the case, to whom are you accountable? How do you verify and justify that what you are doing is indeed the appropriate thing to do? From what you told us, you take certain information that you hear and pass it along. It can be a rumour or a source of information that you get from whatever or wherever, and you pass it along. What responsibility or reporting mechanism do you have to ensure that you do so responsibly?

Mr. Intscher: Senator, I can assure you that we would not pass along information on the basis of rumour. The information that we are allowed to pass on to investigative bodies relates to personal and financial information reported to us by the reporting entities about the transactions of their clients. What we can pass on is the identity of the person conducting the transaction, the beneficiary of the transaction, where the transaction occurred — in other words, which institution, the date, the amount, and information of that kind. It is information that is drawn from the reports that financial institutions are required to submit to us.

Our organization is subject to the access-to-information and privacy legislation, and to the extent that there is a concern about the information that we hold and disclose, it would be on the basis of privacy, and we are certainly subject to review by the Privacy Commissioner of Canada. Anyone can bring a complaint to the commissioner about a disclosure we may have made, or even a fear that we may have made a disclosure about them. The commissioner can review whether or not we are actually lawfully and reasonably making those decisions to disclose.

Senator Stratton: The recourse is well defined so that if a company or individual is charged, the recourse is clearly spelled out to them, or do they have to find that out for themselves?

Mr. Intscher: Since we are not involved in the relaying of the charge, or even in the investigation, I cannot answer that question.

Senator Stratton: Okay.

The next question relates to the matter of cash over $10,000, which is understandable. I am more curious about cheques and numbered companies. You would think that someone seriously involved in this business of terrorism would use other methods than cash to transfer money through companies offshore or onshore through numbered companies. How do you proceed with the financial institutions on something such as that because you would think that would be the more likely route used by terrorist groups rather than a cash transaction? Is that not the case? If so, how do you perceive it?

Mr. Intscher: First, I would not underestimate the importance of cash in terrorist financing. About half the case disclosures we have made so far involved large cash transactions; in other words, cash transactions over $10,000. Financial institutions are also alert to attempts by individuals to conduct transactions that are intended to disguise their activity by falling below reporting thresholds.

It will not surprise you that most banks, credit unions and so on monitor transaction activity below $10,000, and if a particular client consistently makes cash deposits of $9,700 or $9,500 that would, in all likelihood, catch their attention. They might then inquire more into the customer's business to see whether that kind of cash activity is reasonable in the context of the customer's business or profession.

There is also the element of transferring money around, both domestically and internationally, as a means of obliterating the trail, consolidating money without attracting attention and so on. Transfers of funds in and out of the country of $10,000 or more are also reported to us by financial institutions.

When we look at the combination of reports that we receive — suspicious transactions, large cash transactions, international wire transfers, cross-border currency movements and so on — we compare all of them to each other as a means of trying to see whether there is a pattern of activity or a pattern of deception that jumps out at us.

Is it possible to move money despite that? Yes, it is but because of the relatively low thresholds that we have on even the objective transactions, I think it is not possible to move large amounts of money without it coming to someone's notice who will ultimately report it to us, or coming to our notice as we look at the different kinds of transactions.

If someone wants to launder $60,000, it is probably fairly easy to break that up into small chunks, go to different financial institutions and dispose of it or hide it that way. If they need to launder $10 million or $20 million, then it becomes a major task for them to break that up into sums that are so small that they are not subject to the reporting requirement. In fact, it would involve such frequent transaction activity that almost certainly one or more financial institutions would notice that there is a sudden surge of cash transactions occurring below the threshold and would report those to us as suspicious transactions.

The thresholds themselves mean that we cannot absolutely catch everything but I think we can catch most things that are significant. Those thresholds were put in place to exempt normal family or household transactions from an automatic reporting requirement. If the cash transaction or wire transfer strikes the institution as being suspicious, they can report it irrespective of the threshold. For example, if I were to transfer $9,000 or $13,000 to my daughter who is attending university at another place, that is not really a transaction that we are much interested in. In most families there are cash transactions or money transfers related to the affairs of the family that do not need to be reported and that are not of interest to us. I believe there are a lot of those.

When they become larger transactions, then the larger they become the greater is the potential for that transaction stream also to provide cover for elicit activity. That was the purpose of introducing a threshold of $10,000. There is nothing magic about the threshold. Many countries have a threshold roughly at that level, but also many have thresholds of $25,000. In Switzerland, it is $250,000.

Senator Austin: What sanctions can you bring to bear on financial institutions should they not comply with the reporting requirements?

Mr. Intscher: I would like to preface that answer with a bit of an explanation as to our overall approach. We look upon the compliance program as being, in part, a means of deterring money laundering or terrorist-financing activity, but also to allow us to maximize the quality and quantity of reporting from those institutions.

We take a cooperative and constructive approach to the reporting entities. We provide a lot of information to them about what their compliance obligations are. We have them do self-assessment questionnaires to give us an indication of how they think they are doing. On the basis of highest risk for non-compliance, we do compliance examinations.

With respect to minor deficiencies or transgressions, we would normally give them a letter saying, Here are the deficiencies in your compliance undertaking, and please let us know within 30 days how you plan to address those. In all probability, we would also conduct a follow-up visit to ensure they have actually done this. That is the soft approach that we take.

When we think there is significant deficiency or failure to report certain kinds of transactions, the act provides pretty serious criminal penalties for failure to report, failure to keep records and so on. When we think that a reporting entity is substantively not complying and is indifferent to, or resistant to, our efforts to bring them into compliance, we can then refer them to the police for investigation and prosecution for non-compliance.

The penalties that would come into force are: failure to report a suspicious transaction — conviction could lead to up to five years imprisonment and a fine up to $2 million; failure to report a large cash transaction — conviction could lead to a fine of up to $500,000 for the first offence and $1 million for subsequent offences; and failure to obtain records — conviction could lead to five years imprisonment and a fine of up to $500,000.

Senator Austin: Would officers and directors of these organizations be subject to possible fines and imprisonment?

Mr. Intscher: Yes.

Senator Austin: Anyone who had control of those deficient behavioural patterns would be subject to a penalty.

Have you had complaints about the burdens or costs of mandatory reporting for these financial institutions?

Mr. Intscher: I am not aware of any complaints, perhaps in part because the financial industry generally embraces and supports the objectives of this initiative. They are responsible corporate citizens, which they were before this regime came into effect. Financial institutions were making disclosures to law enforcement agencies about suspected criminal activity and money laundering before the act was in place. They have welcomed this initiative because it is more comprehensive and it levels the field. Everyone is subject to the same requirements, whereas the previous voluntary regime always left some wondering whether their competitors might be cutting a few corners.

In addition, when we implemented the reporting requirements we engaged in extensive discussions, for a few reasons, with reporting entities such as banks, credit unions, currency exchanges, et cetera. We wanted to provide a lot of information to them about what we would be asking them to do. We wanted to give them lots of advance notice that this was coming. We wanted to develop reporting mechanisms that made it fairly easy for entities to report.

We rolled out an electronic reporting system straight to the reporting entities. It allowed them access to the electronic form on our website so they could easily fill it in and send it to us electronically. We did this, in some cases, in ways that had us asking for less information than we would have liked, ideally.

For example, with international wire transfers, there is any amount of information that would be nice to have but to facilitate the reporting process and to reduce the costs of reporting for the entities, we decided to accept the information that travels with those electronic transfer instructions. In other words, if they use the swift transfer message system to transfer money from London to Toronto, that becomes the information reported to FINTRAC that we then work with.

Senator Austin: I have one question that requires a very short answer. Does the legislation exonerate these financial institutions from civil liability in connection with the transfer of the information to FINTRAC?

Mr. Intscher: Yes.

Senator Jaffer: Following along Senator Austin's line of questions, do you also work closely with the Office of the Superintendent of Financial Institutions, OSFI, when there is no compliance? Is that another way to deal with non- compliance?

Mr. Intscher: That is a good question. Yes, we have received authority to enter into information exchange agreements on compliance, with other regulators. We are in the process of concluding agreements with various regulators for them to conduct some of the compliance work on our behalf. We have put such an agreement in place with OSFI, and I believe we have four provincial gaming regulators. There are a number of other regulatory bodies with whom we are in discussion to conclude such agreements.

Senator Jaffer: Madam Chairman, my next question is long and technical. If I may, I will submit it to you in writing for sending to Mr. Intscher at FINTRAC for a written response.

The Chairman: I would be pleased to do that.

Senator Joyal: Mr. Intscher, in your presentation you did not refer to any international agreement that would facilitate the exchange of information among countries in respect of money laundering and organized crime. Is that right? In the list of the 20 that you mentioned, I see a huge gap in some regions of the world where you cannot depend on a counterpart for similar information exchanges.

Mr. Intscher: Currently, there is not an international agreement. Bodies such as FINTRAC exchange this kind of information on a bilateral basis with partners that might have information relevant to their work and in whom they have confidence. Those countries with whom we have concluded agreements reflect many of the significant destinations or points of origin of financial transfer information that we can see from the data reported to FINTRAC. Numerous other countries are still of interest to us and, in some cases, they are less interested in talking to us. There are a couple of jurisdictions, for example, where we have been trying for more than two years to engage in discussions about a memorandum of understanding, MOU, for the exchange of information. For whatever reasons, which can relate to privacy or bank secrecy within their own jurisdictions, they may be reluctant or unable to exchange information.

In some instances, there is a kind of disconnect between our requirement for a memorandum of understanding and their lack of authority to enter into such an agreement. They could exchange information freely without a memorandum of understanding but they are not authorized to enter into an agreement. With one country, we were able to devise a formula to conclude the memorandum of understanding in the form of a letter of intent between the head of the counterpart organization and me. That organization subscribes to the same definitions, descriptions and restrictions but they were not authorized to sign an MOU.

There is an informal association of bodies such as ours that has developed standards for financial intelligence units in terms of their independence, ability to disclose information and ability to exchange information with other foreign bodies. Membership in that association is being urged forcefully by the International Monetary Fund and the World Bank. There are 94 bodies such as FINTRAC that belong to the association and another 20 or 25 on the near horizon set to join.

When they become members, they commit themselves to the principles of exchange of information and the protection of information. Within the association, there are sanctions for members who violate the confidentiality of the information that is shared with them. Currently, there is not an international agreement that would cover the exchange of this kind of information.

Senator Joyal: My last question is in relation to the Auditor General's report that you referred to in your presentation. You said that you are working to enlarge the scope of information to be disclosed. Could you be more specific?

Mr. Intscher: We do not actually have the lead on that initiative. Rather, the Department of Finance has the lead on that and is responsible for the legislation and regulations.

However, the concerns that were expressed to the Auditor General, and that we were also aware of previously, were that law enforcement agencies would prefer if we could enrich the package that we disclose to them to include more information: to include information, for example, as to our suspicion of the underlying activity, and to provide more information as to what led to our reaching suspicion or indicators of money laundering or terrorist financing that we used in coming to that determination.

While we are sympathetic to their needs and their statement as to how to enhance the utility of the product, there are some significant legal and constitutional issues that are raised by some of those proposals, so that needs to be studied quite carefully. In some cases, the inclusion of additional ``designated information'' or identifying information might be useful where linkages can then be made or can be shown that it is not now possible for us to show.

We are also, independent of that exercise, internally in our organization, looking at ways in which we can make the information that we disclose more accessible and more vivid. In other words, the significance of the information is more readily apparent at first glance because it was our sense that in a number of case disclosures we made that were found to be frustrating, we had included large quantities of transaction information and it was pretty dense. We are looking at ways in which we can present that in tabular or chart form that makes the significance of it jump out more at the investigator who receives it.

Out of the initiative that is being led by finance, there may be some legislative and regulatory proposals that emerge. From our own work internal to FINTRAC, there will also be some changes to how the product is presented, how the information is presented and how relationships are shown, which will make it more immediately meaningful to the occasional recipient of the product.

The Chairman: Thank you very much to all of you. This obviously is a very difficult issue, one of great interest to the committee and it has been quite a session.

I want Senator Jaffer to know that once her longer question is transmitted to you and responded to, that will be included as an appendix to this set of hearings.

Honourable senators, on that note, we will adjourn. We will be back in our chairs at 1 p.m. on the dot for our afternoon session.

The committee adjourned.